From ACT Wiki
Jump to navigationJump to search
The printable version is no longer supported and may have rendering errors. Please update your browser bookmarks and please use the default browser print function instead.
  1. An option which effectively establishes a maximum worst case hedged rate or price for a cash outflow or a liability, while allowing the holder of the cap to retain the potential benefit of more favourable lower market rates or prices. In the case of a commodity, the cap would be a call option over the commodity.
  2. The hedged expense profile achieved by the combination of a cap option with the underlying exposure.
  3. A risk management arrangement whereby limits are placed on the positions that participants in an interbank funds transfer system can incur during the business day.

See also